Most of us discovered that CDOs, CDSs and Libor rates were dangerous things before we knew what they were. These weapons of mass financial destruction blinded with science in 2008. There was a sense that the bankers had been up to no good, but through such baffling means that it was tricky to pinpoint the villains.
The sharpest economists, such as Joseph Stiglitz , immediately grasped that all the complex derivatives were flimsy cover for old-fashioned skullduggery: leaching customers with rip-off fees, concealing dangerous debts, and shunting losses on to other people. In the last two or three years, the connections between high finance and low morals have become plainer. Money-laundering , systematic mis-selling andfraudulent manipulation of “market” rates for personal gain: just name the misdeed, and the big high street banks have been up to their necks. Few revelations can still shock, although one of the many fines that Lloyds was ordered to pay on Monday did leave the jaw dropping – a £7.8m penalty for rigging an interest rate which bore on the fees the Bank of England charged for one of its bailouts. Lloyds, that is, was taking with the one hand, while also taking with the other.
This was a conspiracy against the public, even as it rescued the bank. Mark Carney’s denunciation of “unlawful” behaviour pulled no punches. The Canadian governor of an institution whose officials used to remark that “the Bank is a bank”, and regard promoting the City as their job, is an outsider to Britain, and it showed. His words represented a modest moment of reckoning. A mood of simmering rage against the elite grips the country, and it owes much to a sense that the oligarchs who impoverished everyone else have got away with it. Americans complain that only one serious, senior banker , Kareem Serageldin, was jailed for the crisis; Britain has not even managed that.
So it was refreshing to see Mr Carney point the finger, and hear him hint at criminal charges. The drip-drip confirmation of how dreadful banks have been, however, is suggestive of problems going well beyond any individual crimes. We have now muddled through seven straight years of crisis without having had the fundamental discussion about what it is that we want banks to do. Yes, there is the basic piggy-bank function, to which the Vickers report offered a solution of sorts before the government watered it down. But the real task of finance ought to be to marry thrift and productivity for the general good, by identifying and investing in those enterprises that can make best use of funds.
Few think our banks do that. Only last week, both the business secretary, Vince Cable, and the chief economist at Threadneedle Street, Andy Haldane, highlighted concerns about the scarcity and the impatience of capital in those fields that can do most for growth. These anxieties trace back to what has gone awry in the banks. After all, with 22 Lloyds employees directly implicated in the latest scandal, there has been systematic moral failure. Banks preoccupied with making a fast and dishonourable buck are not going to do the business.
Through the boom and into the bust, the bankers were brilliant at wriggling round regulation. What is needed, therefore, is not just stronger regulation, but real culture change. Thinktank ResPublica yesterday proposed forcing bankers to take the equivalent of a Hippocratic oath, but further changes in personnel will surely ultimately be required to reset the industry’s mores.
For years, super-size pay-packets have been justified by the need to “retain talent”. Even at newly nationalised banks, top bosses clung to bonuses on the basis that we might otherwise end up with the sort of plodding bureaucrat who used to run the finances for the Yorkshire water board. As scandal follows scandal, we might want to think again about how much worse the man from the water board would be. At least he probably wouldn’t have been caught with his hand in the till.
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